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Hong Kong launches digital currency pilot: 16 firms join the program

Hong Kong, a global financial hub, has taken a major step towards embracing digital currencies as it launches a digital currency pilot. The city recently announced the launch of a digital currency pilot program in collaboration with 16 prominent financial institutions, including HSBC, Bank of China, and Alipay. This initiative marks a significant milestone in Hong Kong’s efforts to explore the potential benefits and challenges of digital currencies.

The Hong Kong Monetary Authority (HKMA) has initiated its e-HKD pilot program, aiming to explore various use cases across six categories thoroughly. This significant step is a precursor to potentially introducing a retail central bank digital currency (CBDC), as stated by the HKMA.

Commencement of e-HKD Pilot Program Underway

Thursday marked the announcement by the Hong Kong Monetary Authority (HKMA) regarding the initiation of the e-HKD Pilot Program. In its first round of pilots for 2023, the central banking institution has carefully chosen 16 firms from the financial, payment, and technology sectors to participate. The HKMA provided further details on the matter, stating:

“The pilots will take deep dives into potential use cases in six categories, including full-fledged payments, programmable payments, offline payments, tokenized deposits, settlement of Web3 transactions, and settlement of tokenized assets. “

Describing the initiative, the monetary authority stated that it would engage in a series of pilots in strong partnership with diverse stakeholders to investigate the use cases of e-HKD. Furthermore, it will delve into the challenges pertaining to its implementation and design. The HKMA expressed its intention to share significant insights with the public during the Hong Kong Fintech Week 2023, scheduled for November.

Diverse lineup of companies joining Hong Kong’s Digital Currency Pilot Program

The roster of participating companies in Hong Kong’s newly launched currency pilot program encompasses a wide range of prominent institutions. Among them are Alipay Financial Services, Bank of China, China Construction Bank, Fubon Bank, Ripple Labs, Standard Chartered Bank, Hang Seng Bank, HSBC, Visa, Industrial and Commercial Bank of China, Mastercard Asia/Pacific, Boston Consulting Group.

Eddie Yue, the chief executive of HKMA, expressed his thoughts on the matter, stating, “While the HKMA has yet to reach a decision regarding the introduction and timeline of e-HKD, we are thrilled to initiate the e-HKD Pilot Program. This presents a remarkable opportunity for the HKMA to engage in collaboration with the industry, exploring innovative use cases and enhancing our preparedness for the potential implementation of e-HKD.”

As part of its “Fintech 2025” strategy, the Hong Kong Monetary Authority released its policy stance on e-HKD in September of the previous year. The authority carried out two rounds of market consultation, focusing on high-level technical design and key policy and design issues. Throughout the consultation period, a total of 75 responses were received, indicating active engagement from stakeholders.

The Three-Rail Approach: HKMA’s Strategic roadmap for e-HKD implementation

During that period, the HKMA clarified its strategy, outlining a three-rail approach. Rail 1 involves establishing the necessary technological and legal foundations for e-HKD. Rail 2 centers around exploring various use cases and conducting pilot programs. Finally, Rail 3 concentrates on the actual launch of e-HKD, building upon the insights gained from the earlier phases.

In Thursday’s announcement, the HKMA highlighted that the e-HKD Pilot Program plays a pivotal role as a part of Rail 2 in the HKMA’s three-rail approach, laying the groundwork for the potential future implementation of a retail central bank digital currency (CBDC) known as e-HKD.

As Hong Kong launches the digital currency pilot in collaboration with 16 prominent financial institutions, it signifies a significant step towards embracing digital currencies. Led by the HKMA, the pilot program aims to test the viability of a central bank digital currency and gather comprehensive data from various sectors. This initiative demonstrates Hong Kong’s commitment to innovation, positioning itself at the forefront of the global fintech revolution while ensuring the stability and integrity of its financial system.

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